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RR No. 16-2008 PDF
RR No. 16-2008 PDF
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
Quezon City
1. Individuals:
i. Resident Citizen
ii. Non-resident citizen
iii. Resident Alien
iv. Taxable estates and trusts
2. Corporations:
i. Domestic corporation
ii. Resident foreign corporation
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that for individuals, the basis of the 40% OSD shall be the “gross sales” or “gross receipts”
and not the “gross income” .
For other individual taxpayers allowed by law to report their income and
deductions under a different method of accounting (e.g. percentage of completion
basis, etc.) other than cash and accrual method of accounting , the “gross sales” or
“gross receipts” pursuant to this Section shall be determined in accordance with said
acceptable method of accounting.
For purposes of these Regulations, “Gross Income” shall mean the gross sales less
sales returns, discounts and allowances and cost of goods sold. “Gross sales” shall include
only sales contributory to income taxable under Sec. 27(A) of the Code. “Cost of goods sold”
shall include the purchase price or cost to produce the merchandise and all expenses directly
incurred in bringing them to their present location and use.
For trading or merchandising concern, “cost of goods sold” means the invoice cost of
goods sold, plus import duties, freight in transporting the goods to the place where the goods
are actually sold, including insurance while the goods are in transit.
For manufacturing concern, “cost of goods sold” means all costs incurred in the
production of the finished goods such as raw materials used, direct labor and manufacturing
overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials
to the factory or warehouse. The term may be used interchangeably with “cost of goods
manufactured and sold”.
In the case of sellers of services, the term “gross income” means the “gross receipts”
less sales returns, allowances, discounts and cost of services. “Cost of services” means all
direct costs and expenses necessarily incurred to provide the services required by the
customers and clients including (a) salaries and employee benefits of personnel, consultants
and specialists directly rendering the service, and (b) cost of facilities directly utilized in
providing the service such as depreciation or rental of equipment used and cost of supplies:
Provided, however, that “cost of services” shall not include interest expense except in the
case of banks and other financial institutions. The term “gross receipts” as used herein means
amounts actually or constructively received during the taxable year. However, for taxpayers
engaged as sellers of services but employing the accrual basis of accounting for their income,
the term “gross receipts” shall mean amounts earned as gross revenue during the taxable year.
The items of gross income under Section 32(A) of the Code, as amended, which are
required to be declared in the income tax return of the taxpayer for the taxable year are part of
the gross income against which the OSD may be deducted in arriving at taxable income.
Passive incomes which have been subjected to a final tax at source shall not form part of the
gross income for purposes of computing the forty percent (40%) optional standard deduction.
For other taxpayers allowed by law to report their income and deductions
under a different method of accounting (e.g. percentage of completion basis, etc.)
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other than cash and accrual method of accounting , the “gross income” pursuant to
this Section shall be determined in accordance with said acceptable method of
accounting.
If Individual If Corporation
If the taxpayer opts to use the OSD in lieu of the itemized deduction
allowed under Section 34 of the Code, as amended, his/ its net taxable income shall
be as follows :
If Individual If Corporation
___________ ___________
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SEC. 6. DETERMINATION OF THE OPTIONAL STANDARD
DEDUCTION FOR GENERAL PROFESSIONAL PARTNERSHIPS (GPPs) AND
PARTNERS OF GPPs. – Pursuant to Sec. 26 of the Code, a GPP is not subject to
income tax imposed under Title II thereof. However, the partners shall be liable to
pay income tax on their separate and individual capacities for their respective
distributive share in the net income of the GPP.
Sec. 26 of the Code likewise provides that- “For purposes of computing the
distributive share of the partners, the net income of the GPP shall be computed in the
same manner as a corporation.” As such, a GPP may claim either the itemized
deductions allowed under Section 34 of the Code or in lieu thereof, it can opt to avail
of the OSD allowed to corporations in claiming the deductions in an amount not
exceeding forty percent (40 %) of its gross income. The net income determined by
either claiming the itemized deduction or OSD from the GPP’s gross income is the
distributable net income from which the share of each partner is to be determined. Each
partner shall report as gross income his distributive share, actually or constructively
received, in the net income of the partnership.
The GPP is not a taxable entity for income tax purposes since it is only acting as a
“pass-through” entity where its income is ultimately taxed to the partners comprising it.
In computing taxable income defined under Section 31 of the Code, the individual partner
can still claim either itemized deductions or optional standard deduction from his share in
the net income of the GPP because said share is considered as gross income in the hands
of the partner (Section 32(A)(11) and Section 26, NIRC). If the GPP availed of the
itemized deduction in computing its net income, the partners may still either claim
itemized deduction or OSD from said share, provided, that, in claiming itemized
deductions, the partner is precluded from claiming expenses already claimed by the GPP.
In fine, if the GPP claimed itemized deductions and a partner is also claiming itemized
deductions, the deductions allowed to the partner must be the ordinary and necessary
expenses for the practice of profession which were not yet claimed by the GPP in
computing its net income. The GPP and each of the partners are entitled to their own
election of deductions to claim during the taxable year thereby resulting to four
possibilities, namely: (1) the GPP may claim itemized deductions in computing net
income and a partner may also claim itemized deductions in computing his taxable
income; or (2) the GPP may claim OSD in computing net income while a partner may
claim itemized deductions in computing his taxable income; or (3) the GPP may claim
itemized deductions in computing net income while a partner may claim OSD in
computing his taxable income; or (4) the GPP may claim OSD in computing net income
and a partner may also claim OSD in computing his taxable income.
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OSD is precluded from amending said return in order to shift to the itemized deductions.
An individual taxpayer who is entitled to and claimed the OSD shall not be required to
submit with his tax return such financial statements otherwise required under the Code.
Provided, that, except when the Commissioner otherwise permits, the said individual
shall keep such records pertaining to his gross sales or gross receipts. In the case of a
corporation, however, said corporation is still required to submit its financial
statements when it files its annual income tax return and to keep such records
pertaining to its gross income as herein defined.
In the filing of the quarterly income tax returns, the taxpayer may opt to use
either the itemized deduction or OSD. However, in filing the final adjustment income
tax return, the taxpayer must make a choice as to what method of deduction it or
he shall employ for the purpose of determining its/his taxable net income for the
entire year. The taxpayer is, thus, not allowed to use a hybrid method of claiming
its/his deduction for one taxable year.
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(a) To compute for OSD allowed for the various periods covering the Year 2008 -
(b) To compute for the net income of Mr. ERA under OSD the same shall be
determined as follows :
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to use the OSD method in claiming its deductions when filing its annual income tax
return for Year 2008 shall be allowed to use the 40% OSD only in respect to the
period beginning July 01, 2008 while the method of deduction to be used prior
thereof shall remain to be under the itemized deduction method.
(a) To compute for OSD allowed for the period from July 06 to December
31, 2008
July 01 to Sept. Oct. to December
Gross Sales P 700,000 P 900,000
Less : Cost of Sales 300,000 600,000
_____________ ______________
Gross Sales / Gross Income P 400,000 P 300,000
X OSD rate (maximum) .40 .40
_____________ ______________
OSD P 160,000 P 120,000
============ ============
(b) To compute for the net income of GSV Corporation , the net income for the
period from January 1 to July 05, 2008 shall be computed using the itemized method
of deduction while the 40% OSD shall be applied for the period covering July 06,
2008 to December 31, 2008.
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July 01 to September 30 300,000
October 1 to December 31 600,000 _ 1,500,000
Gross Income P 1,100,000
Less : Deductions
Itemized Deductions
(Operating expenses
from January to June 30) 100,000
Optional Standard Deduction (OSD)
(July 01 to September 30) P160,000
(October 1 to December 31) 120,000 280,000 380,000
_________________
(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending Approval:
(Original Signed)
SIXTO S. ESQUIVIAS IV
Commissioner of Internal Revenue
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